According to OneFamily, 45,000 purchases using the Help to Buy ISA have been delayed because some of the funds – a Government bonus – are released after the purchase and therefore cannot be used towards the deposit.
It has meant many first-time buyers using the savings scheme have been forced to borrow from friends or family to cover the deposit gap.
So far, 1.2 million savers have opened a Help to Buy ISA, the tax-free savings scheme which allows first-time buyers to save money towards their house purchase and receive a 25% Government bonus.
However, according to OneFamily’s survey of homeowners and potential buyers, despite these huge numbers taking advantage of the scheme, only 196,000 have actually used it to buy a home.
Nici Audhlam-Gardiner, managing director of Lifetime ISAs at OneFamily said: “The average deposit for a first-time buyer is now more than £30,000 so it’s harder than ever to save up for a home, and for many people is by far the biggest hurdle.
“The Lifetime ISA, introduced last year, is far better for first-time buyers as not only do savers make more in Government bonuses, they can actually use it towards the deposit.”
OneFamily’s research highlighted a lack of understanding surrounding Help to Buy ISAs. For example, 41% of potential first-time buyers wrongly believed they could use the savings on any mortgage. But, it explained, it can only be used to buy a home worth £250,000 (or under £450,000 in London).
Audhlam-Gardiner added: “We support the closure of the Help to Buy ISA next year as it is not fit for purpose and is actually delaying property sales, however our research shows that the majority (55%) of first-time buyers remain unaware of the Lifetime ISA.
“We are urging the Government to reiterate its closure plans and further support the Lifetime ISA and help the thousands of people who are desperate to get on the ladder.”
‘Hugely popular’
The Government states on its Help to Buy website that when savers are close to buying their first home, they must instruct their solicitor or conveyancer to apply for the Government bonus element of the savings plan. This bonus cannot be used for the deposit at the exchange of contracts.
A HM Treasury spokesperson said: “The Help to Buy ISA continues to be hugely popular with first time buyers, with more than 1.2 million accounts opened and 196,000 bonuses paid.
“The Government bonus is paid between exchange and completion once it is certain the transaction is going ahead. This contributes to your overall deposit and therefore increases your savings for your first home.”
The advice from The Treasury to first-time buyers who are in a situation where they need the Government bonus is to make up the deposit on exchange of contracts. Their solicitor or conveyancer will be able to advise on the options.
